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Author: 


Dartnell  corporation 


Profit 
salesmen 

ace: 

Chicago 


haring  plans  for 


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Dartnell  corporationrtSvioago, 

•••  Profit  sharing  plans  for  salesmen,  sales 
executives,  departraenb  managers  and  office 
workers I  with  a  section  on  the  compensation  of 
the  sales  manager,  cojnpiled  by  J.C.Aspley. 
Chicago  ^192-? 3 

22  1,  forms,  29  om«   (Special  report,  no,  59) 


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SPECIAL   REPORT  ^S 


9 


PROFIT  SHARIKQ  PLANS  FOR  SALESE5EN,  SALES  EXECUTIVES. 
DEPARTMENT  MANAGERS  AND  OFFICE  WORKERS; 
fflTH  A  SECTION  ON  THE  CeWPENSATION 
OP  THIS  SALES  MANAGER 


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SCHOOL  OF  BUSINESS 


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Compiled  by 
7.   C.   ilSPLEY,   eHICASO 


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PDRPOSK  OF  THIS  REPORT 


It  is  not  the  purpose  of  this  report  to  go  into  detail 
concerning  profit  sharing  plans  for  factory  workers/ 
inasmuch  as  this  subject  has  already  been  thoughtfully 
treated  by  such  institutions  as  Alexander  Hamilton 
Institute,  Babson's  Statistical  Organization,  and  the 
authors  of  several  excellent  books  to  say  nothing  of 
the  U.  S.  Department  of  Labor. 

This  report  concerns  itself  only  with  plans,  or  por- 
tions of  plans,  which  are  applicable  to  the  executive 
and  sales  staffs.  S?e  have  heard  much  about  profit 
sharing  as  a  cure  for  labor  unrest.  But  we  have  heard 
little  about  profit  shgtring  as  a  cure  for  executive 
unrest,  which  while  not  so  boisterous  as  the  unrest  of 
the  factory  worker  is  quite  as  pronounced,  and  fraught 
with  even  more  serious  consequences  to  the  business. 

This  report  is  in  no  sense  a  blanket  endorsement  for 
the  profit  sharing  plan.   Indeed,  it  comes  out  clearly 
in  gathering  the  data  for  it,  that  there  are  just  as 
many  reasons  against  it  as  there  are  for  it.  What  we 
have  aimed  to  do  is  to  set  forth,  impartially  and 
without  bias,  the  exact  facts  as  we  have  gathered  them 
from  the  experience  of  over  300  concerns,  and  then 
leave  it  to  the  individual  subscriber  to  draw  his  ow^ 
conclusions.  A  profit  sharing  plan  might  work 
splendidly  for  the  executives  of  one  business,  but 
prove  fatal  for  another, 

Sven  though  your  concern  is  not  at  present  interested 
in  this  subject,  it  is  recommended  that  this  report 
be  filed  for  reference.  Should  the  question  come  up 
later,  as  is  very  likely,  the  data  which  we  have  here 
gathered  at  considerable  expense  may  prove  of  material 
value  far  exceeding  the  cost  of  this  report.   So  far 
as  we  know,  it  is  the  oialy  authorative  and  comprehen- 
sive report  dealing  with  the  question  of  profit  shar- 
ing for  the  sales  and  e:tecutive  worker. 


t   !™£ii!l  ~^[^  91   PROFIT  SHARING  PLANS  FOR 
GENERAL  AND  SALES  EXECUTIVES,  SALESUEN  AND  OFFICE  WORKERS 


Much  of  the  material  embodied  in  this 
report  is  -semi-confidential  in  character. 
Right  of  republication  of  any  portion  of 
report  is,  therefore,  withheld  unless  per- 
mission is  first  secured  from  either  The 
Dartnell  Corporation  or  concern  quoted. 


»HAT  PROFIT  SHARING  IS  INTENDED  TO  ACCOMPLISH  •-  An  analysis  of  thirty  odd 

general  profit  sharing  plans  in  use,  including  those  nf  the  Ford  Motor  Company, 

Seari  Roebuck  &  Company,  Eastman  Kodak  Company^  Dennison  Manufacturing  Company, 

Sunlight  Soap  SVorks  (England),  Proctor  &  Gamble,  Way  Sagless  Spring  Co.,  A.  W. 

Burritt  k   Co.,  International  Harvester  Company,  William  Demuth  &  Company,  leads 

us  to  the  following  conclusions  regarding  profit  sharing  so  far  as  it  may  be 

applied  to  all  employees,  both  shop  and  office: 

1:   As  a  general  thing,  profit  sharing  plans  have  not  been 
successful  in  preventing  labor  unrest  among  factory  workers. 
Even  in  these  days  of  fair  profits  the  militant  minorities 
among  workers  in  factories,  sharing  profits  have  provoked 
strikes. 

2:   The  Bureau  of  Labor  statistics  show  that  the  dividends 
paid  under  profit  sharing  plans  by  34  concerns  ^ere  too  small 
to  influence  unrest  in  the  present  era  of  high  prices.   The 
profit  is  seldom  over  6  percent.   Indications  are  that  if  a 
period  of  reduced  profits  were  to  set  in,  the  plan  would 
be  still  less  effective. 


3:   Indications  are  not  lacking  that  organized  labor  will 
eventually  open  a  campaign  against  profit  sharing  in  the 
factory,  if  indeed  such  a  campaign  is  not  even  now  being 
secretly  waged.   Labor  leaders,  jealous  of  their  power  and 
concerned  mainly  about  their  continuance  in  office,  cannot 
be  expected  to  passively  permit  workers  to  be  weaned  away 
from  local  unions  by  profit  siharing  plans,  whatever  they  may 
say  in  public  to  the  contrary. 


.  4  - 

4:  While  there  are  cases  whore  profit  sharing  and  so  called 
plans  of  "industrial  democracy**  have  and  are  proving  success- 
ful, it  is  doubtful  in  the  opinion  of  economiats  wbo  have  given 
study  to  the  results  so  far  acocmplished,  y^hether  these  plans 
will  give  permanent  relief  lifter  the  novelty  has  worn  off. 

An  analysis  of  these  same  plans,  ho^rever,  proves  conclusively  that  profit  shar- 
ing is  not  only  feasible,  but  in  many  instances  highly  beneficial  when  applied 
to  those  in  higher  positions.   Several  concerns  who  have  tried  profit  sharing 
for  all  employees  have  abandoned  the  idea  in  the  factory,  but  continued  it  in 
the  office  and  among  the  sales  force.   In  most  cases  of  this  kind  which  we  have 
investigated  we  find  that  the  benefiits  have  been  mutual,  and  that  greater 
efficiency  and  better  reoations  have  resulted.  All  in  all,  our  information 
loads  to  this  conclusion:  Profit  sharing  for  the  factory  work  is  not  desirable. 
It  does  not  satisfy  the  worker  even  in  times  of  high  profit,  and  will,  there- 
fore,  prove  a  liability  rather  than  an  asset  in  times  of  poor  profits,  as 
workers  will  not  accept  a  reduction  in  earnings  when  it  is  possible  for  them  to 
make  more  money  elsewhere.  But  profit  sharing  for  the  salaried  employee,  or 
the' commission  salesman  is  in  most  oases  desirable  for  it  appeals  to  that 
class  of  employees  who  can  hetter  understand  and  appreciate  its  operation. 
PROFIT  SHARING  PLANS  FOR  SALARIED  WORKERS:   A  subscriber,  writing  upon  the 
apparent  failure  of  profit  sharing  for  factory  workers,  questions  the  wisdom  of 
going  to  so  much  trouble  to  satisfy  the  salaried  worker,   "^e  have  reached  the 
conclusion,"  he  says,  "that  about  as  good  a  way  as  any  in   to  pay  adequate 
salaries  large  enough  to  keep  our  force  contented."   There  is  a  good  deal  of 
logic  in  this  attitude.   There  are,  however,  several  important  advantages  that 
may  be  over-looked. 
Foremost  among  the  advantages  of  the  salary  and  profit  sharing  plan  as  against 


the  straight  salary  or  straight  commission,  is  the  building  up  of  esprit  de 


corps.   Employees  feel  that  anj  saving  they  may  effect  benefits  them.   They 


-  5 


feel  that  they  are  in  business  for  themselves,  and  take  a  deeper  interest  in 


the  welfare  of  the  company,  not  only  as  pertains  to  matters  which  come  to  the 
attention  of  their  immediate  superior,  but  in  matters  not  strictly  within  their 
province.  There  is  a  big  difference  in  the  value  to  a  business  of  an  employee 


who 


feels  that  ho  is  working  for  himself,  and  one  who  feels  he  is  working  for 


his  pay  envelope  and  when  that  same  feeling  is  held  by  all  the  salaried  employ- 
ees of  a  business,  a  noticeable  increase  in  efficiency  is  the  logical  result. 

There  are  several  ways  of  producing  this  effect.  But  all  of  these  plans 
should  be  built  on  definite  fundamentals.   These  fundamentals  have  been 
thoughtfully  set  down  in  a  most  excellent  report  on  the  subject  of  profit  shar- 
ing by  the  Alexander  Hamilton  Institute  as  follows: 

l5  Belief  on  ^he  part  of  employers  that  employees  are  entitled 
to  share  in  tjie  profits:   It  is  needless  to  say  tHat,  if  tTie 
employer  does  not  honestly  believe  that  the  plan  he  is  seeking 
to  establish  is  just,  the  employees  will  soon  come  to  the  con- 
elusion  that  it  has  been  established  simply  to  get  more  work 
out  of  them. 

^'      Study  of  peculiax^nee<^3;   Xt  is  impossibl^^  to  adopt  bodily 
any  profit  sharing  plan  used  by  some  other  concern   It  must  be 
adapted  to  the  peculiar  needs  of  the  organisation  to  which  it 
is  applied.   There  are  so  many  points  to  be  considered  in  con- 
nection with  J^uch  a  system,  that  earnest  consideration  should 
be  given  before  any  plan  is  adopted. 

3:   A  definite  agreement;   It  is  a  serious  and  usually  complic- 
ated business  to  start  a  profit  sharing  system.   There  are 
possibilities  of  misunderstanding,  unjust  claims,  and  even  of 
lawsuits.   It  is,  therefore,  necessary  to  draw  up  a  clear  and 
carefully  worded  agreement  to  which  reference  can  be  made  in 
case  of  dispute.   Many  employers,  in  order  to  protect  themselve» 
from  litigation,,  stipulate  that  the  undertakings  of  this  arrange- 
ment are  subject  to  modification  and  not  enforcible  at  law. 

4:   Simplicity:   The  plan  should  be  drawn  up  in  such  simple 
language  that  it  may  be  readily  understood  by  the  worker,  as 
well  as  by  the  employer.   This  is  manifestly  necessary  in  order 
that  no  disputes  may  arise  in  regard  to  the  construction  to  be 
placed  upon  any  part  of  the  agreement. 

5:   Co-operation  between  the  employer  and  the  employee;'  It  is 
quite  impossible  to  make  such  a  plan  practicable  unless  each 


.  6  . 


party  to  the  arrangemeat  understands  the  other  and  co- operates  to 
the  fullest  extent. 

5:  Reward  must  be  timely:   If  the  reward  offered  by  the  employer  is 
too  far  removed,  the  plan,  even  though  drawn  up  in  the  most  excellent 
form  will  be  worse  than  useless.  Speaking  very  generally,  %h^_re^_ 
wards  should  follow  as  closely  as  practicable  the  work  done  to  obtain 
them.  The  fact  that  a  reward  which  is  to  be  given  only  after  the  end 
of  six  month's  or  a  year's  work  does  not  appeal  so  strongly  to  a  man 
as  one  that  he  receives  weekly  or  monthly,  constitutes  one  of  the 
major  difficulties  of  the  whole  idea. 

7-   Reward  must  be  adequate:   Any  reward  of ferelMJ^, worker  must 
be  large  enough  to  appeal  to  him.  The  return  over  the  regular  wafer 
must  be  such  that  the  worker  will  be  repaid  for  the  additional  effort 
he  has  expended. 

8:  Basis  of  distribution  fixod  in  advance:   If  the  basis  of  distrib- 
ution of  the  reward  is  not  fixed  in  advance,  the  plan  lacks  one  of 
the  salient  features  of  profit  sharing,  which  is,  that  a  definite 
proportion  of  net  profits  shall  be  distributed. 

9-  Profit  sharing  must  not  be  counted  as  a  part  of  the  wage  by 
either  party:  This  is  one  of  the  danger  points.  The  employee  is 
apt  to  do  so  and  frequently  employees  have  actually  spent  or  borrowed 
on  the  amount  that  they  expect  to  receive  at  the  time  the  profits  are 
divided.   It  is  evident  that  such  a  course  is  dangerous  to  the  em- 
ployee,  who  may  over-estimate  the  amount  coming  to  him.   It  may  lead 
him,  moreover,  to  an  injudicious  expenditure  of  this  extra  income  on 
current  needs.  Employers  are  just  as  negligent  in  this  respect  and 
are  apt  to  think,  though  they  may  not  say  so  to  the  employee,  that 
the  amount  which  he  gets  at  the  profit  sharing  time  is  a  part  of  his 
renumeration. 

10:   Purpose  of  plan  must  be  predetermined:   It  is  necessary  to  ^^^^J" 
mine  in  advance  what  special  purpose  is  to  be  arrived  at  m  installing 
profit  sharing,  at^d  to  have  the  details  arranged  accordingly.   A  plan 
which  aimed  at  industrial  efficiency  might  be  useless  in  securin'g 
length  of  service.  _ 

Hi  Care  after  installation:  A  system  of  this  kind  will  not  take 
care  of  itself.  It  must  be  watched  with  a  great  deal  of  care,  and 
the  interest  in  it  must  be  kept  up,  both  by  the  employer  and  by  the 
employee.  I 

12:   A  fair  trial:   It  has  been  said  by  some  writers  that  a  system 
of  this  kind  ought  not  to  be  installed  unless  the  employer  is  willing 
to  give  it  at  least  two  or  three  yars'  trial.  This  does  not  seem  to 
be  any  too  long,  in  view  of  the  difficulties  connected  with  it. 

SELLING  THE  PROFIT  SHAHINQ  IDEA  TO  THE  PARTICIPANTS:   It  is  true  of  any  new 

idea  to  be  applied  to  an  organization  that  its  success  depends  very  largely 


0 


-  7  - 

on  th8  way  it  is  put  up  to  the  men.  A  sales  contest  fails  very  often, 
because  the  men  have  not  been  put  in  a  receptive  mental  attitude  for  it.  So 
in  installing  a  nev7  plan  of  compensa-'sion,  it  must  bo  well  "sold."  If  such  a 
plan  is  instituted  at  the  request  of  the  men  themselves,  it  will  be  much  better 
received  than  a  plan  that  is  offered  by  a  charitably  inclined  management.  The 
following  latter  is  contributed  by  a  large  security  concern  who  instituted  a 
profit  sharing  plarj  far  salesmen,  and  it  might  prove  helpful  in  showing  how 
one  concern  presented  profit  sharing  to  the  sales  force: 
Dear  Sir: 


t 


We  have  been  giving  a  great  deal  of  time  and  thought  and  seeking  ad- 
vice wherever  we  thought  it  would  be  valuable  on  the  question  of  compens- 
ation to  salnsmen.  Personally,  I  tiave  been  very  desirous  of  arriving  at 
some  profit-sharing  basis  fair  to  the  firm  and  fair  t<^  the  salesman  that 
might  work  out  automatically  so  as  to  avoid  the  embarrassing  question  of 
constantly  discussing  this  subject.  Uy   own  experience,  covering  now  about 
twenty-five  years  in  the  business,  convinces  me  that-  th?^  true  method  is 
one  based  on  results.   This  rpeans  results  both  to  the  firm  and  by  the  in- 
dividual.  It  goes  without  saying  that  a  firm  ris^^s  or  falls,  succeeds  or 
fails,  wholly  on  the  basis  of  results.  The  individual  cannot  always  be 
rated  on  this,  because  there  may  be  conditions  that  govern  which  may  be 
beyond  his  control,  and  he  may  do  oertain  work  tV\at  may  not  show  up  in 
immediate  results,  but  my  experience  is  that,  in  the  long  pull,  the  indiv- 
idual who  devotes  the  proper  amount  of  time  and  effort  to  any  territory  in 
which  he  works  will  be  satisfied  to  be  judged  by  the  results  over  a  period 
of  years. 

In  railroads  and  other  corporations  it  has  become  the  practice  to 
have  departments,  and  to  put  competent  men  at  the  head  of  these  depart- 
ments and  to  let  these  departmental  heads  adjust  the  matter  of  territory 
and  efforts  and  judge  of  results.  In  this  method,  however,  there  is 
alv?ays  the  possibility  of  favorltijjm  or  of  overlooking  certain  endeavor 
or  effort  that  is  really  entitled  *io  recognition.  What  I  have  been  trying 
to  do  is  to  cover  all. of  these  points  and  to  decide  upon  a  standard  of 
gauging  the  result  of  efforts  in  various  directions. 

I  wish  to  express  personally,  my  appreciation  of  the  patience  each  of 
cur  force  has  shown  in  waiting  for  these  methods  to  be  worked  out  and 
tested,  and  while  I  do  not  feel  that  we  have  yet  fully  covered  the  ground 
or  arrived  at  an  absolutely  satisfeictory  solution,  I  do  think  we  have 
reached  a  point  where  we  can  start  in  by  putting  into  effect  certain  plans 
that  we  have  been  working  on  with  the  idea  of  giving  them  a  fair  trial. 

I  think  any  fair-minded  man  will  agree  that  the  capital  employed  in 
any  business  is  entitled  to  a  fair  interest  return  as  a  fixed  charge. 


.♦ 


.  S  - 

Than  comes  the  risk  of  doing  bu3ineBs.  Everybody  who  has  been  in  the  bus- 
iness for  a  period  of  years  will  recognize,  no  matter  how  conservative  the 
bouse  may  be,  or  hc^  careful  in  the  selection  of  its  securities,  that 
there  are  bound  to  b©  periods  when  a  house  cannot  avoid  sustaining  losses, 
unless  it  has  such  an  enormous  capital  that  it  had  best  simply  invest  its 
money  and  not  try  to  do  business;  in  this  case  there  is,  of  course,  nothing 
left  to  be  divided  in  the  way  of  profits  --  it  is  simply  a  question  of 
interest  on  invested  capital. 

The  next,  or  third  consideration,  is  probably  the  reputation  of  the 
house,  which  ia  entitled  to  recognition.   If  a  firm  has  itself,  or  is  able 
to  command  for  a  long  period,  a  sufficient  capital  with  which  to  do  a 
large  business,  these  questions  of  risk  and  of  its  reputation,  which  is 
derived  from  careful  management,  from  the  selection  of  competent  and  high 
class  employees,  from  advertising  and  any  of  the  other  many  methods  to 
which  success  may  be  attributed,  arg)  factors  entitled  to  recognition. 

Therefore,  our  theory  is  that  j;alesmen  or  others  who  devote  their 
abilities  and  time  to  the  interests  of  the  house  should  receive  a  certain 
fixed  compensation  or  salary,  which  they  may  rely  upon  whether  business  is 
good  or  bad.   This  salary  would  be  gauged,  however,  upon  the  character  of 
the  results  they  have  been  able  to  sihow.  Of  course,  devotion  and  loyalty 
to  a  business  are  entitled  to  recognition,  but,  as  things  go  in  this  world, 
it  is  very  difficult  to  fix  upon  a  fair  compensation  for  this  quality  of 
loyalty  and  devotion,  and  it  has  become  a  very  general  practice  in  commer- 
cial houses  to  estimate  this  compensiation  on  results  and  the  value  to  the 
house  of  the  responsibility  assumed  by  the  individual. 

Therefore,  after  a  fair  allowance  is  made  for  capital,  the  risk  of 
business  and  the  reputation  of  the  house,  if  the  business  is  successful 
there  is  a  divisible  surplus  that  should  be  divided  among  those  who  get 
results  on  the  basi^  --  as  nearly  and  so  far  as  it  can  be  ascertained  •- 
of  these  results. 

The  individual  who  has  the  ability  to  do  things  on  his  own  initiative 
and  to  turn  in  results  that  are  creditable  and  profitable,  should  be  will* 
ing  to  be  compensated  on  the  basis  of  those  results;  therefore,  it  is 
largely  a  question  of  ascertaining  what  is  the  fair  basis  of  dividing  these 
results  so  that  at  end  of  a  given  period  the  capital  of  the  house  has  not 
been  impaired,  that  it  is  still  in  a  position  to  continue  along  the  lines 
which  it  is  organized  to  pursue,  and,  if  the  individuals  selected  get  these 
results,  are  competent  and  have  given  a  good  account  of  themselves,  they 
should  find  in  this  organization  as  good  a  field  to  compensate  them  fairly 
for  their  efforts  and  on  their  merits  as  they  could  find  anywhere  else, 

I  propose,  therefore,  that  we  put  into  effect  plans  which  we  have  care- 
fully worked  out  in  each  of  the  offices  for  the  salesmen,  these  arrange- 
ments to  be  made  through  the  head  of  the  Sales  Department  in  each  office, 
with  the  hope  that  the  plan  will  work  satisfactorily,  become  practically 
automatic,  and  result  in  very  much  less  discussion  of  these  matters  than 
has  heretofore  been  the  case. 


i 


In  this  connection,  speaking  from  a  long  experience,  I  think  it 


-  9  . 

proper  to  warn  salesman  against  tha  advisibility  of  discussing  these  ar- 
rangements with  representatives  of  other  houses,  in  fact,  against  wasting 
their  time  and  efforts  in  discus3i:ag  these  questions  among  themselves. 
Constant  discussion  of  these  questions  does  not  bring  results--the  same 
amount  of  time  and  effort  directed  toward  getting  results  will  bring  far 
more  satisfactory  returns  than  constant  discussion  and  fretting  whether 
this  one  or  that  one  is  getting  more  or  less  than  he  would  like  to  have  or 
than  anybody  else  is  getting. 

In  talking  about  this  matter  with  some  well-established  houses,  not 
only  in  our  line  but  in  some  other  lines  of  business,  particularly  mercan- 
tile houses,  I  have  been  pleased  to  find  that  representatives  and  employees 
were  not  aware  of  what  others  were  getting  and  paid  no  attention  to  it.   It 
was  simply  a  question  of  whether  the  particular  place  and  opportunity 
afforded  the  individual  as  good  a  forum  in  which  to  work  out  his  destiny 
as  anything  to  which  he  could  apply  his  talents. 

There  was  al^o  other  matters  which  are  entitled  to  consideration  in 
this  connection,  such  as  the  proper  employment  of  time,  use  of  facilities 
and  opportunities,  the  care  with  which  expense-i  are  watched  and  the  general 
interests  of  the  house,  for  this  must,  of  course,  come  back  to  affect  each 
individual,  and,  aside  from  what  is  fair  and  what  is  good  morals,  purely 
from  a  selfish  point  of  view,  the  individual  who  ha?  these  matters  in  mind 
is  bound  to  accomplish  the  most  for  himself. 

This  house  has  been  growing  and  expects  to  grow.  It  will  be  the  policy 
of  the  house  to  fill  the  mare  important  positions  from  the  ranks  rather  than 
to  seek  talent  froon  the  outside  This  again  will  be  based  as  nearly  as  pos- 
sible on  merit,  and  our  effort  will  be  to  devise  a  system  that  will  make  a 
record  possible,  dependent  not  upon  the  whim  or  favoritism  of  any  one  indiv- 
idual or  of  any  member  of  the  firm,  but  upon  what  the  results  accomplished 
by  each  individual  show  him  to  be  entitled, 

A  PLAN  WHEaEBY  SALESMAN  SHARES  LOSSES  AS  WELL  AS  PROFITS:   Clawson  A  ffllson 

Company  of  Buffalo,  N.  Y.  has  tried  both  the  salary  and  commission  plans.   It 

found  the  salary  plan  undesirable,  because  it  discouraged  initiative,  and  did 

not  always  reward  the  men  on  the  basis  of  what  they  did.   Too  often  the  men 


were  rewarded  on  the  basis  of  what  the  house  thought  they  did.   Again,  a 
salesman  who  succeeded  in  increasing  his  sales  materially  by  dint  of  hard 
work,  was  sometimes  compelled  to  wait  several  months  before  he  was  awarded  for 
that  extra  effort,  bj  an  adequate  raise  In  salary.   This  the  company  felt  was 


not  fair  to  the  salesmen,  who  ought  to  really  share  the  profit  on  each  sale 


at  the  time  it  is  made,  and  not  be  required  to  wait. 

Some  of  these  major  objections  to  the  salary  plan  were  overcome  in  the 


.  10  • 

aommission  plan,  but  this  too,  \ms  unsatisfactory  because  it  encouraged  men  to 
push  the  articles  which  they  sold  easiest.  To  encourage  the  salesman  to  direct 
selling  energy  along  lines  that  would  be  to  the  house's  best  interests  -•  and 
by  the  same  reasoning  to  the  salesman's  own  best  interests,  the  management  de- 
cided on  a  plan  of  compensation  that  enabled  salesmen  to  automatically  regulate 
their  own  salaries  and  encourages  them  to  keep  expenses  down  to  the  very  low- 
est point  consistent  with  results. 
The  plan  in  a  nut-shell  is  to  group  all  the  products  sold  according  to  the 


margin  of  profit  the>^  offer  the  house.  The  salesman  is  told  just  what  the 
profit  is  in  each  item,  then  his  orders  com^e  in,  the  accounting  department 


credits  his  account  with  the  profit  on  that  sale.  At  the  end  of  the  period, 
the  profits  on  all  sales  is  totaled  up.   Cancellations,  returned  ^ods  on 
former  orders  and  expenses  deducted,  and  the  salesman  is  paid  a  predetermined 
portion  of  this  net  profit. 

Ifhat  this  portion  should  be  depends  oq  several  factors.  One  important  factor 
is  the  nearness  of  \.he   territory  to  the  home  office.   The  company  finds  it 
easier  for  the  salesmen  to  sell  near  Buffalo,  than  in  the  middle  western 
states.   So  the  salesmen  working  nearer  the  home  office  gets  a  smaller  portion 
of  the  profit  on  his  work  than  the  salesman  working  say,  upper  Michigan.  Other 
territories  are  those  sometimes  spokea  of  as  in  the  "nursing  condition."  On 
these  territories  the  company  is  willing  to  take  a  temporary  loss,  knowing  that 
eventually  a  good  business  will  be  built  up  under  strong,  constructive  sales- 
manship.  So  the  salesman  working  this  sort  of  a  territory,  quite  often  gets  a 
premium  from  the  company  as  well  as  whatever  profit  he  is  able  to  make.   Again 
some  salesmen  are  better  business  builders  thaii  others.  While  their  immediate 
sales  may  not  be  as  large,  they  take  pains  to  make  better  customers  as  they  go. 
This  is  work  which  the  company  will  cash  in  on  for  years  to  come.  The  company 


-  11  - 


can  wall  afford  to  allow  that  kind  of  a  salesman  a  far  greater  share  of  the 
profits  on  his  work,  than  a  salesman  who  travels  over  the  territory  skioiming 
the  cream  from  It,  and  leaving  tomorrow  to  take  oare  of  Itself. 
As  s'ated,  the  plan  suggested  here  is  not  in  any  sense  experimental,  and  can  be 
adapted  by  any  business  where  it  is  desired  to  encourage  salesmen  to  push  more 
profitable  lines,  maintain  prices  and  keep  down  expense  accounts.  This  plan 
lets  the  men  share  profits  during  a  period  of  prosperity,  and  shoulders  them 
with  some  of  the  loss  in  a  period  of  depression. 

A  still  further  advantage  of  this  profit  sharing  feature  is  that  it  tends  to 
attract  better  salesmen.  Clawson  4  Wilson  have  men  who  make  as  high  as  $10,000 
a  year  under  this  plan,  who  would  have  to  be  content  with  a  |5,000  .alary  were 
they  working  for  a  concern  using  the  old  salary  plan.  But  a  man  who  can  make 
big  profits  for  himself  is  to  be  welcomed,  because  the  success  of  the  company 
depends  largely  on  what  he  gets  out  of  his  territory.   Putting  on  a  salesman 
who  can  get  twice  as  much  business  out  of  a  territory,  means  more  than  double 
profits  from  that  t.,rritory  for  the  company,  because  it  costs  no  more  to  travel 
a  good  salesman  than  It  does  a  poor  one. 

This  Clawson  A  Silson  plan  was  originally  submitted  to  Dartnell  subscribers  in 
1916  shortly  after  it  was  installed.  The  following  letter  under  date  of 
October  7,  1919  from  James  Wilson,  vice-president  and  general  manager  of  the 
company  --  three  years  afterward  --  is  of  interest: 

"This  arrargpment  with  the  travelling  men  and  also  with  the  de- 
partment managers  has  worked  nut  verj  satisfactorily  and,  of  course, 
for  the  past  two  years  when  profits  have  been  rather  abnormal,  they 
have  made  considerable  money  and  are  very  well  pleased.  Our  depart- 
ment managers  draw  a  fixed  salary  and  get  a  percentage  of  the  pro- 
fits made  in  their  own  particular  department  over  a  certain  fixed 
amount  which  varies  in  the  different  departments. 

"However,  there  are  some  executive  positions  that  cannot  show  a 
profit.  For  instance,  the  nan  in  charge  of  our  shipping  department, 
we  have  him  on  a  different  basis  and  we  give  him  a  percentage  on 


-  12  . 

what  he  can  save.  He  figure  that  it  costs  so  much  to  ship  every 
$1000.00  worth  of  merchandise  based  on  our  experience  of  several 
years  previous  and  whatever  he  can  save  on  that  amount,  he  gets  a 
percentage  of.  Then  again,  others  we  give  a  flat  bonus  to  at  the 
end  of  the  year  as  there  is  no  way  of  their  showing  in  actual 
figures  just  what  they  have  mada  for  u^.  This  refers  to  office 
executives." 

PLAN  OP  THE  PERICDICAL  PUBLISHING  COyPAN?:   John  H.  Nind.  Jr..  vice-president 
of  the  Periodical  Publishing  Company,  publishers  of  several  furniture  trade 
papers,  sends  us  the  following  data  regarding  the  plan  his  company  has  worked 
out  for  compensating  its  advertising  salesmen,  as  well  as  all  other  salaried 
workers: 

"In   general,  the  profit  sharing  plan  is  as  follows:  After  the 
stockholders  have  received  six  percent  on  their  stock,  representing 
merely  interest  on  the  money  invented,  employees  receive  dividends  on 
the  amount  of  their  annual  salaries  at  the  same  rate  as  stockholders 
on  their  stock. 


y- 


"For  instance,  if  a  six  percent  dividend  only  is  earned  and  paid, 
employees  receive  no  profit  sharing  bonuses,  but  if  a  10^  dividend  is' 
paid,  an  employee  with  a  salary  ot   |l,000  per  year,  would  receive  ^%   on 
that  amount  just  as  the  stockholder  with  |i,000  of  stock  would  receive 
4^  on  his  stock  in  addition  to  the  initial  ei. 

"Prior  to  April  1,  1919.  all  advertising  space  salesmen  were  paid 
on  a  commission  basis.  On  that  date  the  company  assumed  all  travelling 
expenses  of  advertising  space  salesmen,  and  paid  representatives  on  the 
basis  of  salary  and  expenses.  The  statement  of  the  working  basis  laid 
down  for  advertising  representatives  is  as  follows,  after  eliminating 
features  relative  to  the  nine  month's  period  of  the  current  year: 

"Each  advertising  representative  shall  be  paid  a  salary  and  ex- 
penses. For  the  purpose  of  determining  the  actual  earnings  of  each 
representative,  memorandum  accounts  shall  be  kept.  These  accounts  shall 
show  all  amounts  drawn  as  salary  and  expenses.   They  shall  also  show  the 
advertising  representative's  earnings.  For  this  purpose  all  business 
originating  in  each  representative's  territory  will  be  credited  to  him 
on  thfl  previously  established  commission  basis;  that  is.  when  the  busi- 
ness  comes  direct  from  the  advertiser  and  is  billed  to  him,  a  credit  of 
20^  on  published  business  will  accrue  to  the  advertising  representative. 
In  the  case  of  business  coming  from  an  Agency  where  the  agent  is  paid 
10^.  the  credit  to  the  advertising  representative  on  published  business 
will  be  15^  of  the  amount  of  the  advertising  invoice.   In  cases  where 
the  home  office  of  the  advertiser  is  located  in  one  advertising  repre- 
sentative's  territory,  and  the  order  for  the  advertising  comes  from  an 
advertising  agent  with  headquarters  in  another  advertising  representa- 
tive's territory,  the  15^  commission  credit  shall  be  divided  ^1%   to  the 


t 


^ 


-  II  - 

representative  in  the  other  territory.  The  above  records  are  solely  for  the 
purpose  of  establishing  the  salary  of  tl^.e  representative  and  shall  not  be 
ccttsidered  as  commission  earnings  except  for  the  pt^rpose  of  establishing  an 
equitable  salary* 

'•When  the  records  thus  kept  shall  at  the  end  of  a  calendar  year  show 
that  the  salary  and  travelling  and  other  expenses  of  an  advertising  represent- 
ative are  exceeded  by  the  total  of  credits  thus  earned  for  a  calendar  year. 
automatically  a  new  salary  basis  shall  be  established  for  the  ensuing  year. 
To  establish  the  new  salarj  basis,  the  amount  of  the  travelling  and  other  ex- 
penses  (but  not  the  salary)  shall  be  deducted  from  the  total  of  the  credits 
and  the  balance  shall  establish  the  amount  of  the  salary  to  be  paid  in  twelve 
monthly  or  52  weekly  installments. 

"In  figuring  the  deduction  for  travelling  expenses,  the  average  from  any 
available  record  over  a  period  of  years  in  the  specific  territory,  shall  be 
the  basis.   In  establishing  any  increas(3d  salary  for  the  year  1919,  necessar- 
ily the  nine  months  of  1919  alone  will  be  the  only  basis  for  calculation. 
Salaries  thus  established  shall  not  be  reduced  when  a  representative's  credits 
for  a  given  year  do  not  equal  his  salary  and  travelling  expenses.   Several 
successive  year's  ootitinuation  of  a  condition  whereby  salary  and  expenses 
exceed  credits,  or  circum<?tance3  calling  for  a  general  reduction  of  wages 
throughout  the  organization,  shall  be  n<5cessary  for  a  reduction  of  an  adver- 
tising representative's  salary  established  by  previous  earnings. 

"tn  addition  *o  advertising  representatives*  salaries  being  established 
by  their  earnings,  as  above  indicated,  advertising  representatives  shall 
participate  in  the  general  profit  sharing  plan  of  the  organization  as  follows: 

"This  profit  sharing  arrangement  provides  that  after  the  stockholders 
have  received  ^t   interest  on  the  money  yhlch  they  have  invested  in  the  stock 
of  the  company,  at  par.  all  employees  share  in  additional  profits  on  the  basis 
of  their  salary.  Thus,  when  dividends  of  10%  are  paid,  for  instance,  the 
employee  receiving  $1^000  during  the  year  as  wages,  receives  4%  as  a  profit 
sharing  dividend  on  the  amount  of  $1,000.   in  the  case  of  advertising  repre- 
sentatives, the  salary  basis  for  the  computation  of  any  profit  sharing 
dividends  shall  be  the  amount  of  all  commission  credits  for  the  year  less  the 
deduction  for  travelling  and  other  expenses, 

"For  instance,  should  the  memorandum  commission  credits  to  an  advertising 
representative  receiving  $60  per  week  exceed  the  amoun-^.  of  his  salary  for  .the 
year  or  $3,120,  then  the  amount  of  those  credits  less  the  amount  of  the  trav- 
elling expenses  shall  be  considered  the  salary  for  the  lear  on  which  profit 
sharing  dividends  are  figured  rather  than  $3,120. 

"The  Directors  of  the  company  stand  strongly  for  the  principle  that  those 
who  make  the  publications  and  whose  activities  are  confined  very  largely  to 
editorial  or  inside  work  at  the  home  office »  are  fully  as  much  entitled  to 
generous  treatment  as  are  the  outside  or  advertising  representatives.   The 
ability  of  the  representatives  to  successfully  sell  advertising  space  in  our 
publications,  is  to  a  large  extent  due  to  the  quality  of  those  publications  as 
made  by  the  inside  representative. 


\ 


•  14  • 

'ihile  it  is  believed  that  the  salary  ftnd  profit  sharing  basis  for  adver- 
tising representatives  outlined  above,  will  not  require  change,  nevertheless, 
ho"d  continued  operation  of  the  above  plan  indicate  an  "f-  P"P°jJ^;,;^° 
reward,  going  to  the  advertising  representatives  as  against  the  «*°°f °1J«" 
or  editorial  members  of  the  organization,  a  readjustment  of  the  above  arrange 
ment  would  be  necessary.  Such  a  readjustment  will  not  be  made  prior  to 
January  1,  1922.' 

There  are  a  number  of  elements  in  this  arrangement  to  «hich  attention 
should  be  properly  directed.  The  purpose  of  making  the  salary  increases  de- 
nendent  on  net  income  after  expenses  have  been  deducted,  is  of  course,  to 
induce  representatives  to  keep  their  expenses  as  low  as  possible.  The  purpose 
Of  Slvi^rrrpresentatives  share  in  th.  credit  for  business  when  the  aocoun  is 
handled  by  an  advertising  agent  in  ons  territory  and  the  home  office  of  the 
advertiser  is  in  another  territory,  is  of  course,  to  secure  cooperation 
between  branches  of  the  organiiation. 

Prior  to  the  time  when  the  profit  sharing  arrangement  with  salaries  was 
in  effect  with  advertising  representatives,  the  inside  organization  felt  that 
the  outside  organization  was  receiving  an  undue  proportion  of  the  income,  in 
!ther  woid!.  that  outside  renu^eration  was  relatively  higher  than  renumaratton 
to  employees  in  the  office.   When  the  change  was  made  from  coaanisaion  to 
•salary  basis,  au  adjustment  in  salaries  all  along  the  line  was  made  which 
gSlirap^aking.  met  with  the  approval  of  the  personnel  both  inside  and 

outside. 

STOCK  PROFIT  SHARING  IN  A  CLOSED  CORPORATION:   There  is  a  decided  tendency 

among  corporations  whose  stock  is  held  by  a  few  officials  or  in  a  family,  to 
aet  aside  a  portion  to  be  spread  around  among  deserving  executives.  It  is 
generally  recognized  that  we  are  living  in  a  new  era  and  that  a  more  liberal 
policy  must  be  adopted.   In  the  long  run  this  is  a  wise  policy,  especially  in 
the  case  of  brokerage  and  jobbing  houses.  The  following  letter  from  H.  U. 
Huffman,  vice-president  of  the  Davis  Sewing  Machine  Co..  Dayton.  Ohio,  is  of 
interest  in  this  connection: 

1   A  large  corporation  in  which  the  common  stock  was  held  within  a 
small  group,  agreement  was  made  among  all  common  stockholders  that  they 
give  up  a  c;rtiin  percent  of  their  common  stock,  which  would  be  "hung 
up"  for  the  executives. 

The  stock  was  nominally  purchased  by  a  trustee  at  the  market  price  and 
the  stockholders  giving  up  stock  were  repaid  for  it  by  dividends  on  the 
stock,  the  payments  being  credited  to  the  executives,  among  whom  it  was 
pro-rated  in  proportion  to  their  salaries. 

The  expense  to  the  common  stockholders  in  carrying  out  the  plan  was  on  a 


Memorandum  Of  Profit  Sharing  Agreement 

(ORIGINAL) 
Memorandum  of  Agreement  entered  into  this__ day  of 


19- 


between   THE    BLANK    COMPANY,   of    the   City   of  Louisville,    Kentucky,    party   of  the   first    part,   and 


.,  of  the  City  of_ 


,  party 


of  the  second  part. 


THE  BLANK  COMPANY  agrees  to  empky  the  said. 


beginning 

accepts  such  employment  hereby. 


.until  December  31,  19 ,  and  said 


CONFIDENTIAL  CONTRACT— The  terms  of  this 
contract  shall  be  kept  strictly  confidential,  and  shall  not 
be  divulged  to  any  one — either  an  employe,  traveling 
salesman  of  our  company  or  to  any  competitor  or  outside 
party.  Any  failure  to  respect  the  confidential  nature  of 
this  Contract  on  the  part  of  the  party  of  the  second  part 
shall,  at  the  option  of  the  first  party,  immediately  operate 
as  a  cancellation  of  this  contract. 

Party  of  the  second  is  to  devote  his  entire  services  to 
the  party  of  the  first  part,  and  under  no  circumstances 
is  the  party  of  the  second  part  to  sell  goods  or  do  work 
for  any  other  person  or  persons,  firm  or  corporation.  The 
party  of  the  second  part  is  to  give  his  best  efforts  at  all 
times  and  cover  such  territory  as  the  party  of  the  first 
pp.rt  directs. 

COMPENSATION— The  party  of  the  first  part  will 
pay  the  party  of  the  second  part  as  compensation,  and  to 
cover  salary  and  expenses  . .  per  cent  of  the  profits  made 
by  said  first  party  upon  the  amounts  received  by  said 
first  party  upon  all  orders  taken  by  said  second  party, 
such  profits  to  be  computed  by  said  first  party;  it  being 
expressly  understood  that  all  orders  taken  shall  be  sub- 
ject to  the  approval  of  the  first  party  and  compensation 
is  to  be  paid  only  on  such  orders  as  are  duly  accepted  and 
shipped   by   the   party   of   the   first  part. 

On  computing  the  profits  to  which  the  second  party  may 
be  entitled  under  this  clause,  deductions  shall  be  made  as 
provided  under  clause  entitled  "BAD  DEBTS." 

SETTLEMENT— The  settlement  between  the  first  and 
second  parties  for  the  purpose  of  determining  the  amount, 
if  any,  due  and  owing  said  second  party,  under  the  clause 
herein  entitled  "COMPENSATION,"  shall  be  made  within 
60  days  after  the  close  of  the  fiscal  year  of  said  first  party. 

PAYMENTS— Party  of  the   first  part  will  allow  party 

of  the  second  part  a  drawing  account  at  the  rate  of 

per  month  at  the  end  of  each  calendar  month  on  account 
of  the  earnings  of  the  party  of  the  second  part  up  to  the 
time  such  payment  is  made. 

GUARANTEE — The  party  of  the  first  part  guarantees 
that  this  contract  in  its  entirety  will  pay  the  party  of  the 
second  part  only  the  amount  advanced,  as  per  clause  en- 
titled "PAYMENTS,"  i.  e.,  to  say  party  of  the  first  part 
guarantees  this  contract  only  to  the  extent  of  making  the 
payments  to  the  party  of  the  second  part  in  its  entiret>  in 
the  amount  advanced,  as  per  clause  entitled  "PAY- 
MENTS." 


MAIL  ORDERS— The  sales  of  the  party  of  the  second 
part  will  be  credited  with  every  mail  order  received  from 
those  merchants  in  his  territory  after  his  first  sale  to 
them   in  person,  and   said  party  of  the   second   part   shall 

receive per  cent  of  the  profit  on  the  same,  the  same 

as  if  order  had  been  taken  by  the  said  party  of  the  sec- 
ond part  in  person. 

HOUSE  ORDERS— The  sales  of  the  party  of  the  sec- 
ond part  will  be  credited  with  every  house  order  received 
from  those  merchants  in  his  territory  after  his  first  sale 
to  them  in  person,  and  said  party  of  the  second  part  shall 

receive. ..  .per  cent  of  the  profit  on  the  same,  the  same 
as  if  order  had  been  taken  by  the  said  party  of  the  sec- 
ond part  in  person. 

DEDUCTIONS— It  is  understood  that  from  party  of 
the  second  part's  portion  of  the  profits  on  Mail  Orders 
and  House  orders,  he  is  to  bear  the  cost  of  getting  these 
orders  on  a  pro  rata  basis,  viz.,  expense  of  the  advertis- 
ing. Mail  Order  Department  and  House  Salesmen  in  pro- 
portion to  the  amount  credited. 

ADVANCE  FOR  EXPENSE  MONEY— Party  of  the 
first   part  will  guarantee  to  advance  party  of  the  second 

part  a  traveling  fund  of  $....  for  expenses,  etc.,  with  the 
understanding  that  at  the  end  of  each  week  itemized  re- 
port of  expenditures  for  that  week  is  sent  in,  so  as  to  reach 
party  of  the  first  part  not  later  than  Monday,  together 
with  Route  Sheet  and  Calling  List,  check  for  the  amount 
will  be  sent  party  of  the  second  part  at  once,  so  the  trav- 
eling fund  will  always  remain  $ 

TERRITORY— Party  of  the  second  part's  territory  will 
be  as  follows  until  otherwise  notified,  viz.: 


SPECIAL  SALESMEN— Party  of  the  first  part  re- 
serves the  right  at  any  time  to  put  special  salesmen  in  the 
above  territory  to  bring  up  the  sales  on  any  item  or  De- 
partment, the  sales  of  such  Special  Salesmen  to  be  cred- 
ited to  party  of  the  second  part  and  the  expenses  charged 
to  party  of  the  second  part. 


V 


(OVER) 


^ 


-  IS  . 

diminishing  scale.  The  total  cost  to  them  was  the  interest  on  the  bal- 
ance owed  them  by  the  trustee  on  their  stock.  Each  dividend  decreased 
the  amount  so  invested  with  a  ciorresponding  decrease  in  the  annual  cost 
of  operating  the  plan. 

The  common  stoclrholders  believe  that  it  ia  good  business  for  them  to  make 
it  an  especial  object  to  the  ej:ecutive  officers  to  produce  satisfactory 
earnings  for  the  company,  for  regardless  of  how  conscientious  a  manager 
may  be,  exceptional  results  are  seldom  obtained  under  the  ordinary  salary 
form  of  reward.   The  actual  results  had  by  this  house  prove  that  the  best 
results  are  to  be  bad  through  proportionate  participation  in  profits 
arising  from  the  business  by  the  men  to  whom  the  owners  of  the  company 
intrust  the  conduct  of  the  business.  Managers  interested  s,^   co-partners 
have  a  direct  incentive  to  make  profits  and  effect  savings.   This  direct 
incentive  produces  results  that  cannot  otherwise  be  obtained. 

The  inducement  of  the  bonus  based  on  the  dividend  on  common  stock  is 
that  it  makes  all  past  and  present  bonuses  productive  only  in  proportion 
to  the  company »s  earnings,  which  is  probably  the  strongest  argument  there 
Is  for  insisting  upon  the  investment  of  shared  profits  in  the  comoany's 
stock. 

MAKING  STOCK  PROFIT-SHARING  PLANS  EASY  TO  GRASP:  Much  of  the  value  of  profit- 
sharing  plans  are  lost,  because  they  are  never  fully  understood  by  the  salesmen 
or  the  executives  benefited.  The  Sill  Stove  Works  have  used  a  profit-sharing 
plan  (details  follow)  for  several  years.  They  employ  salesmen  of  above  the 
average  intelligence,  yet  Mr.  fill  advises  us  that  they  find  many  of  their  men 
do  not  understand  the  operation  of  the  plan,  which  is  ^uite  simple.   It  seems 
to  be  the  concensus  of  opinion  that  much  of  the  success  of  any  stock  participa- 
tion plan  depends  on  the  pains  taktjn  to  explain  its  every  detail  to  the  men. 
SHARING  THJE  SAVINGS  WITH  THS  SALKSMSN:   An  evolution  of  the  profit-sharing 
plan  is  used  bj  one  or  two  subscribers  which  might  be  better  termed,  sharing 
the  savings.  This  plan  is  based  on  a  fixed  cost  of  getting  business  out  of  a 
given  territory  and  then  sharing  the  savings  with  the  salesmen  or  branch  man- 
agers.  The  following  plan  is  used  by  the  Sill  Stove  Works,  and  submitted 
through  courtesy  of  Mr.  Phillip  Will,  vice-president  of  the  concern: 

Each  .salesman  is  given  an  expense  allowance  in  terms  of  a  percentage 
of  his  volume  of  business.  If  the  volume  of  business  in  that  territory 
and  the  expense  of  operating  it  in  previous  years  are  known,  then  these 


V 


•  1$  . 

figures  are  used  as  a  basis  to  start  from.   For  example:  the  given 
territory  has  produced  |30»000  of  business  and  the  cost  of  securing  it. 
.salary  and  traveling  expense  complete  was  $3,000.   This  gives  the 
salesman  an  expense  alXovance  of  lOJ^, 


*-<^ 


The  salesman  receives  half  of  any  "profit"  or  "saving*'  which  he  may 
make  either  hj   reason  of  reduced  expense  or  increased  sales,  for  example: 
the  following  year  his  sales  reiiain  the  same  |30.000,  but  he  reduces  his 
expense  to  $2,800.   His  expense  allowance  on  the  10/^  basis  is  $3,000. 
the  saving  is  $200.00,  he  gets  balf  or  $100.00. 


Again,  if  the  salesman  increaises  his  sales  to  $40,000  his  expense  is 
$3,200   iQ%   of  $40,000  gives  an  expense  allowance  of  $4,000.   Therefore, 
the  saving  or  profit  of  $800.00  is  shown*  of  which  the  salesman  gets  one- 
half  or  $400.00. 


\ 


Bvfery  sort  of  expense  that  may  be  properly  included  in  the  cost  of 
operating  a  particular  territory  is  included,  automobile  expense,  of 
course,  including  Insurance  (these  are  owned  by  salesman.)   Any  price 
concessions  beyond  our  regular  standard  net  prices  for  the  quantity  and 
the  conditions  are  also  charged  in  as  territorial  expense. 

This  "profit-sharing"  or  bonus"  is  handed  to  the  salesman  in  one 
amount  at  the  ^nd   of  the  year.   This  same  amount  i^   also  added  to  his 
salary  to  make  his  salary  for  the  following  year.   This  salary  ii^  subject 

The  following  tables  have  been  prepared  to  show  how  monthly  payments  of  $1  and  upwards  will  pay  for  Profit  Sharing  Certificates  in  amounts  ranging  from  $50  to  $1,000. 

While  the  Profit  Sharing  Plan  provides  that  the  yearly  credit  shall  be  1%  of  tKe  employe's  wages,  these  tables  show  in  each  case  a  credit  of  $10,  this  being  the  minimum 

amount  which  will  be  credited  to  each  subscriber  who  luis  been  in  the  Company's  employment  throughoat  the  preceding  year. 


IIMratlk. 


ti-tOtmUt. 


U.MP«M< 


St.MrvM.. 


$S  MhrlU 


U.MPnM.. 


tTMPtrlb       MMPtrM.        19  M  Pir  M*.      $ia.MP.rM..    tll.MPvlb. 


tlZ-MPvH.     (ll.OOPitllt.    tU.MPvMr    tlSMPtrlU. 


nt.MPvM.. 


|2S.MP«li. 


'♦^w 


# 


1919 

Jan.     2 

Dec.  31 

"     31 

1920 

Jan.     2 

•  2 
I>ec.  31 

"     31 

1921 

Jan.  2 
..        2 

Dec  31 
"     31 

1922 

Jan.  2 
-      2 

Dec.  31 
•'    31 

t923 

Jan.     2 

•  2 
Dec3l 

•  31 

1924 

Jan     2» 

'•      2 


I  %  of  Wagea  (Nflinimum) 
1 2  Monthly  Paymentt 
Interest  at  5°S 


Bidonce 

I  %  of  Wages  (Minimum) 
12  Monthly  Payments 
interest  at  5% 


Balance 

1%  of  Wage*  (Minimum) 
1 2  Monthly  Payments 
Inter««t  at  5% 


Balance 

l%of  Wages  (Minimum) 
1 2  Monthly  Payments 
Interest  at  5% 


Balance 

1%  of  Wages  (Minimum) 
1 2  Monthly  Payments 
Interest  at  5% 


Balance 

I  %  of  Wages  (Minimum) 
Total  Credit — 
Jan.  2.  1924 


$10  00 

12  00 

78 


10  00 

24  00 

I  05 


$10  00 

36  00 

I  33 


$10  00 

46  00 

1  60 


10  00 

60  00 

I  88 


10  00 

72  00 

2  15 


10  00 

84  00 

2  43 


$  22  73 


$  35  03 


$  47  33 


$  59  60 


$  71  88 


$  84  15 


$  %  43 


22  78 

10  00 

12  00 

I  92 


35  05 

10  00 

24  00 

2  80 


47  33 

to  00 

36  00 

3  69 


$59  60 

10  00 

48  00 

4  58 


$  71  88 

10  00 

60  00 

5  47 


84  15 

10  00 

72  00 

6  36 


$  %  43 

10  00 

84  00 

7  25 


$  46  70 


$  71  85 


$  97  02 


$  122  18 


$  147  35 


$  172  51 


$  197  68 


$  46  70 

10  00 

12  00 

3  II 


$  71  85 

10  00 

24  00 

4  65 


97  02 

10  00 

36  00 

6  17 


$  122  18 

10  00 

48  00 

7  71 


$  147  35 

10  00 

60  00 

9  24 


$  172  51 

10  00 
72  00 
10  78 


197  68 
10  00 
84  00 
12  31 


$  71  61 


$  no  50 


$  149  19 


$  187  89 


$  226  59 


$  265  29 


$  303  99 


71  81 

10  00 

12  00 

4  36 


$  1 10  50 

10  00 

24  00 

6  57 


$  149  19 

10  00 

36  00 

8  78 


$  187  89 

10  00 
48  00 
10  99 


$  226  59 
10  00 
60  00 
13  20 


$  265  29 
10  00 
72  00 
15  41 


$  303  99 
10  00 
84  00 
17  62 


$  10  00 

%00 

2  70 


$  10  00 

108  00 

2  98 


$  10  00 

120  00 

3  25 


10  00 

132  00 

3  53 


10  00 

144  00 

3  80 


$  10  00 

156  00 
4  08 


10  00 

168  00 

4  35 


10  00 

180  00 

4  63 


$  10  00 

240  00 

600 


$10  00 
300  00 
7  38 


$  108  70 


$  120  98 


$  133  25 


$  145  53 


$  157  80 


$  170  08 


$  182  35 


$  194  63 


$  256  00 


$  317  38 


$  108  70 

10  00 

%  00 

8  14 


$  120  98 

10  00 

108  00 

9  02 


$  222  84 


$  246  00 


$  222  84 

10  00 
%00 
13  84 


248  00 
10  00 

108  00 
15  38 


$  342  68 


$  381  38 


$  98  17 


$  151  07 


$  203  97 


$  256  88 


$  309  79 


$  362  70 


$  415  61 


98  17 

10  00 

12  00 

5  68 


$  151  07 

10  00 

24  00 

860 


$  203  97 

10  00 
36  00 

11  53 


$  256  88 
10  00 
48  00 
14  45 


$  125  85 


$  193  67 


$  261  50 


$  329  33 


S  125  65 

10  00 


$  193  67 
10  00 


$  261  50 

10  00 


$  329  33 

10  00 


$  135  85 


$  203  67 


$  271  50 


$  339  33 


$  309  79 
10  00 
60  00 
17  36 


$  362  70 
10  00 
72  00 
20  28 


$  397  15 


$  464  98 


$  397  15 
10  00 


$  464  98 
10  00 


$407  15 


$  474  98 


$  415  61 
10  00 
64  00 
23  21 


$  532  82 


$  532  82 

10  00 


$  542  82 


$  342  68 
10  00 
%  00 
19  83 


$  381  36 

10  00 

108  00 

22  04 


$  468  51 


$  521  42 


$  468  51 
10  00 
%  00 
26  13 


521  42 
10  00 

108  00 
29  05 


$  600  64 


$  668  47 


$600  64 
10  00 


$  666  47 
10  00 


$  610  64 


$  678  47 


133  25 

10  00 

120  00 

9  91 


$  145  53 

10  00 

132  00 

10  60 


$  157  60 

10  00 
144  00 

11  69 


$  170  08 

10  00 

156  00 

12  58 


162  35 
10  00 

168  00 
13  47 


194  63 
10  00 

180  00 
14  36 


$  256  00 

10  00 

240  00 

18  60 


317  36 
10  00 

300  00 
23  24 


$  273  16 


$  298  33 


$  323  49 


$  348  66 


$  373  82 


$  398  99 


$  524  80 


$  650  62 


273  16 
10  00 

120  00 
16  91 


$  298  33 

10  00 

132  00 

18  44 


$  323  49 

10  00 

144  00 

19  97 


$  348  66 

10  00 

156  00 

21  51 


$  373  82 

10  00 

168  00 

23  04 


398  99 
10  00 

160  00 
24  57 


$  524  80 

10  00 

240  00 

32  24 


650  62 

10  00 

i200  00 

39  28 


$  420  07 


$  458  77 


$  497  46 


$  536  17 


$  574  86 


$  613  56 


$  807  04 


$  899  90 


$  420  07 

10  00 

120  00 

24  25 


$  458  77 

10  00 

132  00 

26  46 


$  497  46 

10  00 

144  00 

28  67 


536  17 
10  00 

156  00 
30  68 


$  574  86 

10  00 

168  00 

33  09 


613  56 
10X)0 

180  00 
35  30 


$  807  04 
10  00 

,L  60  00 
44  02 


$  899  90 
10  00 

45  50 


$  574  32 


$  627  23 


$  680  13 


$  733  05 


$  785  95 


$  838  86 


$  941  06 


$  955  40 


^  574  32 
10  00 
120  00 
31  97 


$  627  23 

10  00 

132  00 

34  89 


$  660  13 

10  00 

144  00 

37  81 


$  733  05 
10  00 
156  00 
40  73 


$  765  95 

10  00 

168  00 

43  65 


$  838  86 
10  00 

,1105  00 
45  94 


$  941  06 
10  00 


47  55 


$955  40 
10  00 

48  27 


$  736  29 


$  804  12 


$  871  94 


$  939  78 


$1007  60 


$  999  80 


$  998  61 


$1013  67 


$  736  29 
10  00 


$  604  12 
10  00 


$  671  94 
10  00 


$  939  78 

10  00 


$1007  60 
10  00 


$  999  80 
10  00 


$  996  61 
10  00 


$1013  67 
10  00 


$746  29 


$614  12 


$  861  94 


$  949  76 


$1017  60 


$1009  80 


$1008  61 


$1023  67 


How  the  International  Harvester  Company  visualize?  profit-sharing 
to  its  employees.   Even  tltie  best  salesmen  have  considerable 
difficulty  in  grasping  profit-sharing  plans. 


.  17  - 


to  reduction  to  the   old  basis  at  the  end  of  any  quarter,  however,  if  his  A 
sales  fall  behind  the  rate  of  sales  of  the  previous  year  which  produce 
his  bonus. 

The  Globe  Optical  Company  have  a  somewhat  similar  plan,  whereby  the  salesman 
is  paid  a  per  cent  of  the  profit  on  sales  exceeding  his  last  year's  total. 
This  plan  is  described  by  Ur.  R.  C.  Thompson,  treasurer  of  the  company,  as 

follows: 

With  our  salesmen  we  do  as  follows:  Svery  salesman  is  entitled  to 
ten  per  .cent  of  his  perBonal  sales  which  are'  credited  by  us  as  they  are 
shipped.  Each  salesgaan  has  a  regular  expense  account  and  a  drawing  ac- 
count  based  on'^^lie  previous  year's  experience.   The  difference  remain> 
ing,  between  the  amount  of  his  drawing  account  plus^his  current  expenses 
anT^EHe  ten  per  cetit  of  his  personal  sales,  is  paid  him  each  year*   ffe 
have  had  this  plan  in  operation  for  the  past  tan  yeara .  and  it  has  worked 
out  entirely  satisfactorily.  There  have  been  years  when  a  salesman 
possibly  would  not  sell  the  amount  he  sold  the  year  previous;  in  that 
case,  there  would  really  be  a  debit  balance  against  him  which  would  be 
carried  into  the  next  year.  This,  however,  has  only  occurred  on  one  or 
two  occasions}  mainly  the  men  sell  each  year  more  thati  the  year  previous 
so  that  they  have  a  constantly  growing  account. 


^ 


1?e  have  this  arrangement  on  personal  sales  for  two  reanons  -  first,  w 
work  on  a  territory  intensively ,  sometimes  having  three  men  going  to  the 
same  city  so  that  it  would  be  rather  difficult  to  work  it  on  the  question 
of  book  sales;  second,  we  believe  that  by  keeping  it  on  a  personal 
sales  basis  we  get  better  work  from  the  men. 

Another  subscriber  reporting,  uses  a  plan  whereby  a  fixed  percentage  is  allowed 
for  selling,  and  when  sales  on  a  territory  exceed  t-he  volume  necessary  to  meet 
this  fixed  percentage  for  sales,  the  salesman  is  given  a  commission  of  one-half 
the  percentage  saved.  The  plan  is  that  of  the  Killiam  Roberts  Laboratories, 
Port  Chester,  N,  Y.  (formerly  the  William  Hall  Laboratories).   Mr.  D.  H.  Smith 
illustrates  the  operation  as  follows: 

Assuming  our  selling  percentage  is  ten,  if  a  salesman's  territory 
brings  in  five  thousand  dollars  in  one  month  the  allowance  for  selling, 
including  salary  and  expenses,  would  be  five  hundred  dollars.   But  suppos- 
ing salary  and  expenses  amounted  to  only  four  hundred  dollars  in  that 
month,  then  we  would  allow  the  salesman  fifty  dollars  bonus. 

Sales  |5,000  ^ 

Selling  Exp.  Allowed   |  500     10% 

Actual  Expense        |  400      S% 

Saving  I  100      Zt 

i   to  Salesman         I   50     -^^    / 


v^ 


"  18  - 

At  the  end  of  six  months  or  a  year  we  might  find  our  average  selling 
expense  was  only  9  per  cent.  Then,  this  would  be  the  fixed  allowance 
for  selling  during  the  next  period. 

Needless  to  say,  our  figures  are  based  on  billing,  and  returned 
goods  or  unpaid  bills  are  deducted. 

OTHER  PROFIT^ SHAH I NQ  PUNS  IN  USE;   The  American  Rolling  yill  Company,  yiddle- 

town.  Ohio,  have  a  plan  for  sharing  profits  with  salaried  employees  which  has 

been  in  force  since  i9l6,   Onder  this  plan,  salaried  employees  are  divided  into 

two  groups,  those  receiving  less  than  |iOO  a  month,  and  those  receiving  more 

■ 

than  |lOO  a  mouth.   All  such  employees  in  the  first  group,  whose  services  have 
been  satisfactory  to  their  superior  officers  for  the  year,  and  who  have  been 
continuously  employed  by  the  company  as  a  salaried  employee  for  at  least 
eighteen  months,  receive  5%  of  the  amount  of  their  salaries;  those  employed  two 


and  a  half  years  and  under  five  years  V5%,   and  those  five  years  and  under  te 


n 


ynars  12^^.   In  cases  of  salaried  eroployees  receiving  over  |lOO  a  month,  a 

profit-sharing  funi  i.^  provided,  and  distributed  by  the  management  on  the 

following  basis: 

Character  of  position  held. 

Character  and  extent  of  the  responsibility  of  that  position. 

Character  of  service  rendered  In  that  position. 

Character  and  extent  of  co-operation  given  to  other  special 

partners  and  to  the  company. 

Loyalty  to  all  things  Armco. 

The  general  character  of  Armco  Spirit  displayed  all  through  the  year. 

The  Central  Ohio  Paper  Company  have  a  somewhat  different  plan  which  provides 
for  a  percentage  of  profits  to  be  paid  to  the  salesman,  and  ^he  further  stipu- 
lation that  his  salary  shall  be  regulated  accordingly  for  the  future.   H.  C, 
Hanna  describes  this  plan  as  follows: 

The  salesman  had  a  stated  salary,  for  instance  in  1919.  and  on  his 
gross  profits  of  $40,000.00  we  gave  him  10%  of  all  over  |40,000.00 
profit  he  made  in  the  ensuing  year»  and  also  based  his  balary  for  the 
coming  year  on  his  old  salary  plus  the  10%  he  had  made  above  the  quota 
the  previous  year;  in  other  words,  if  he  had  bef»n  making  $3000. Ou  a 
year  and  his  bonus  was  $300.00.  his  salary  for  the  coming  year  would 


>  ' 


>^ 


.  19  - 

be  $3300.00  and  hi  h  quota  would  be  based  on  the  tot^il  amount  of  profit 
ha  mad©  on  his  sales  the  year  preceding.   I  believe  this  is  not  an 
unusual  method  of  prooedure,  but  we  liked  it  very  much. 

Another  paper  house,  Wright,  Barrett  A  Stilwell  of  St.  Paul,  pay  each  sales- 
man 33  1/3  per  cent  of  his  gross  profits  after  he  has  made  his  quota.  His  quota 
is  made  up  of  his  »^alary.  plus  his  share  of  the  over-head  of  the  business.   A 
Hundred  Per  Cent  Club  is  operated  in  connection  with  this  plan,  so  that  when  a 
mao  makes  his  quota  he  knows  that  he  is  in  the  profit-sharing  or  partnership 
class.   Jacob  E.  Decker  k   Sons  pay  a  bonus  On  tonnage  -  that  is,  after  a  sales- 
man exceeds  his  tonnage  quota  he  receives  $2.50  extra  weekly  for  every  1,000 
pounds  sold  over  and  above  his  quota.   Numerous  concerns  pay  a  bonus  out  of 
the  profits  for  sales  to  new  customersi.    Others  use  sliding  coimnissions  with  a 
di efferent  commission  for  each  department,   A  large  office  appliance  concern 
have  what  they  call  a  profit-sharing  quota  plan  that  automatically  increases 
the  rate  of  coEHnission  just  as  soon  aa  quota  is  reached   For  example,  a  man's 
quota  might  be  tSO.OOO  and  his  rate  o;f  commission  5^.   In  the  event  that  he 
makes  his  quota,  h^?  gets  6%   on  the  entire  month's  sales. 

The  Electric  Appliance  Company  fi*  a  sales  bogie  for  thf?  salesmen.   If  they 
make  the  bogie  they  get  a  certain  amount,  say  $200.   If  they  exceed  those 
earnings,  they  get  10^  of  the  profit  on  all  above  that.   Th^re  are  many  other 
plans,  but  the  toregoing  will  serve  to  illustrate  the  varied  applications  of 
profit-sharing  for  salesman  and  branch  managers.    The  i<1eal  plan  for  your 
particular  businea.-^   mus*  ,  however,  ba  worked  out  in  the  light  of  the  peculiar 
conditions  confron'ing  you.    It  is  mxX   to  impossible  to  lift  a  plan  bodily 
from  some  other  field  and  put  it  to  work. 


(copy  OF  CONTRACT) 


Dear  Sir; 

We  are  pleased  to  engage  your  services  for  an  intertniinate  period,  as 
salesman  with  our  Office,  upon  the  following  basis j 


SAL ART. 


MH> 


On  the  first  day  of  each  fisical  year  (Sept.  1),  your  salary  for  the 
new  year  will  depend  on  your  total  gross  profits  for  the  previous 


v^ 


year.   If  gross  profits  amount  to  less  than  |5.000»  you  will  receive  the  mini- 
mum  salary,  namely,  |iOO  per  month.   If  over  |5,000,  you  will  receive  a  monthly 
salary  increased  at  the  rate  of  |4  for  each  |500.  Maximum  salary  |450  a  month. 
Whether  your  salary  advances,  declines  or  remains  stationary,  will  depend  on 
yourself* 

COMMISSION.   As  commission,  we  will  pay  you  at  the  end  of  each  quarter  a  sum 

.^^^ equal  to  3  per  cent  of  the  profits,  as  figured  by  us,  accruing  to 

this  office  on  bonds  sold  by  you  to  customers,  under  regulations  as  established 
by  us.  This  commission,  however,  will  apply  only  on  the  amount  of  profits 
accruing  in  each  year  in  excess  of  $5,000. 

BONUS.  We  will  also  allow  you  a  bonus,  to  be  paid  at  the  end  of  each  fiscal 

year,  providing  you  show  total  profits  for  the  year  in  excess  of 
llO.OOO.   The  percentage  rate  of  the  bonus' will  depend  upon  your  total  profits, 
as  figured  by  us,  and  will  be  calculated  at  the  rate  of  one  per  cent  for  each 
$10,000  of  profits  and  will  be  figured  to  hundredths. 

TO  arrive  at  the  amount  of  the  bonus,  we  will  deduct  from  your  gross 
profits  for  the  year,  your  salary,  premiums,  commissions  and  traveling  ex- 
penses; the  remainder  multiplied  by  the  bonus  rate,  gives  the  bonus.   The 
maximum  bonus  rate  will  be  10  per  cent. 

For  the  present  year,  the  bonus  will  be  paid  on  August  31,  1919,  and 
will  be  figured  on  the  profits  made  by  you  during  the  year  ending  on  that  date. 

TBRRITORY.   Your  territory  will  be  allotted  to  you  by  the  Sales  Department. 


TERMINATION  OP  CONTRACT. 

It  is  also  understood  that  we  shall  have  the  right  of  terminating 
this  contract  on       days'  notice,  and  you  will  have,  likewise,  the  right  to 
terminate  it  on  giving  the  firm  the  same  notice.   We  shall  be  at  liberty  to 
terminate  this  contract,  without  notice,  for  serious  misconduct  or  willful 
neglect  of  duty.   It  is  understood  that  you  will  not  engage  in  any  other  busi- 
ness while  in  our  employ,  nor  work  for  any  other  firm  or  corporation. 

Kindly  confirm  and  oblige, 

Yours  very  truly. 


I  confirm  my  acceptance  of  the  above  contract. 


r 


.  20 


PROFIT-SHARING  FOR  THE  SALES  M/INAGIH 


v^ 


( 


^ 


There  is  evidence  of  a  decided  tendency  on  the  part  of  subscribing  concerns 
to  pay  sales  managers  a  percentage  of  profits  in  addition  to  a  fixed  salary. 
Out  of  eighty-five  concerns  reporting  on  this  question,  nearly  one-half  of  them 
staled  that  they  either  distributed  a  portion  of  the  year's  profits  to  the 
sales  maaag?^r,  or  made  it  possible  for  him  to  secure  a  stock  interest  in  the 
business.  The  consensus  of  opinion  is  that  when  possible,  the  best  profit- 
sharing  plan  that  may  be  devised  is  a  stoclcholding  arrangement,  or  in  the  case 
of  concerns  such  as  automobile  trucks,  pianos,  etc.,  to  decide  upon  a  fixed 

bonus  per  sale. 

It  is  evident  that  these  profit-sharing  plans  for  the  sales  manager  are  not 
philanthropy  by  any  means.  ConditioRS  have  so  changed  in  business  that  the 
Bianageraent  that  seeks  to  set  up  a  closed  corporation,  and  keep  trusted 
employees  from  participating  in  the  profits,  after  the  usual  return  for  capital 
invested  and  management  have  been  deducted,  is  inviting  disaster.  An  instance 
came  to  light,  in  our  investigations,  where  out  of  ten  wholesale  paper  houses 
in  one  Western  city,  all  but  two  of  them  are  off -springs  of  one  company,  and  in 
practically  every  instance  they  were  started  by  men  who  were  refused  a  stock 
interest  in  the  older  business.   It  niay  be  interesting  to  note  also,  that  one 
of  these  concerns,  at  least,  is  already  doing  a  business  far  in  excess  of  that 
done  by  the  old  established  concern.  The  feeling  is  general  among  the  prin- 
cipals of  the  "rebel"  houses,  that  hsid  this  older  concern  adopted  a  policy 
which  would  have  kf»pt  these  men  in  the  business,  it  would,  today,  be  one  of  the 
strongest  paper  jobbing  houses  in  the  West, 

There  are  several  ways  used  for  transferring  stock  to  a  sales  manager. 
If  the  stock  is  listed,  the  problem  is  simple.  But  if  the  corporation  is  a 
closed  one,  as  is  generally  the  case,,  it  may  be  necessary  to  issue  an  adequate 


( 


-^ 


V 


SHOWING  OPERATION  OF  PROFIT-SHARING  PLAN  OF 
SWEET,  CAUSEY,  FOSTER  ^  COMPANY 


(Adjusted  to  a  basis  of  $100,000  annual   net  profit,  of  which   50%  is  distributed 
Salaries  chosen   are  hypothetical   and  for  the   purpose  of  illustration. 


No.  Years 
■witn  Co. 


President  .  .  5 
^  V.-Pres.  .  .  5 
Sec.  &  Treas.  5 
Head  of 
Department  .  3 
Salesman  .  .  3 
Salesman  .  .  2 
Salesman  .  .  4 
Bookkeeper  .  4 
Stenographer  5 
Office   Boy.    2 


mos. 
yrs. 


alary     X   p^^^^^ 


$9,000 

7,000 
6,000 

5.000 
3.000 
3,000 
3,000 
2,400 
1,200 
720 


3 
3 
3 

2 
1 

2 
3 
3 
3 
2 


Basis  of 

Distribution 

$27,000 
2 1 ,000 
18.000 

1 0,000 
3,000 
6.000 
9,000 
7,200 
3,600 
1.440 


V,  Distribution 
Constant 

.26914 
.26914 
.26914 

.26914 
.26914 
.26914 
.26914 
.26914 
.26914 
.26914 


) 


Snare  m 
Profits 

$7,266.78 
5.651.94 
4.844.52 

2.691.40 

807.42 

1,614.84 

2,422.26 

1,937.81 

968.90 

387.56 


Vv. 


c» 


Salaries  for  year,  multiplied  by  Class  Factor,  representing  length  of  employment,  give 
Basis  of  Distribution,  which,  divided  into  $50.000 — the  amount  to  be  distributed — shows  the 
Distribution  Constant  to  be  .26914. 

Total  salaries  for  year  amount  to  $185,780.00. 

$185,730.00  I  $50,000.00 

.26914 

The  amount  of  each  individual's  salary,  multiplied  by  his  Class  Factor,  is  then  multiplied 
by  the  Distribution  Constant  of  .2691  4.  v/hich  gives  the  portion  of  the  distributed  profits  to  which 
each  individual  is  entitled.      (See  table  above.) 

On  this  basis  of  distnbution.  for  the  first  year  THE   EMPLOYEES   ALONE   WILL 

RECEIVE  MORE  THAN   31%   OF  THE  ENTIRE  NET  PROFITS  OF  THE 

COMPANY    after    deduction    of    7%     on    the    combined    capital    and   surplus;    AND    A 
LARGER  AMOUNT  AS  LENGTH  OF  SERVICE  INCREASES. 


> 


r 


\ 


^<. 


-  21   - 

amDuat  of  treasury  stock,  which  will  then  be  issued  to  the  sales  manager  and 
other  department  heada  at  its  book  value.   If  the  sales  manager  cannot  pay  cash 
for  the  stock,  the  c<^rtificate  remains  in  the  hands  of  the  company,  the  buyer 
giving  a  note  for  the  stock  at  the  current  rate  of  interest.   The  dividends 
from  the  stock  are  credited  to  the  buyer  so  that  eventually  the  stock  will  pay 
for  itself  and  the  certificate  with  cancelled  note  becomes  the  property  of  the 
sales  manager.   The  note,  of  course,  is  a  demand  note  to  provide  for  any  un- 
foreseen break  in  the  rela'iions  which  the  sales  manager  enjoys  with  his  house, 

the  feeling  eiists  among  concerns  who  have  tried  various  plans  for  giving 
employees  stock,  that  it  is  better  to  have  them  pay  cash  for  it  whenever 
possible,  and  it  is  seldom  wise  to  make  a  stock  gift  outright.   This  is  because 
a  man  values  a  thing  more  highly  if  he  has  to  make  sacrifices  to  obtain  it.   A 
stock  gift  is  more  or  less  a  salary  increase  based  on  the  success  of  the  busi- 
ness, and  the  holder  of  such  stock  soon  falls  into  the  habit  of  looking  upon 
it  as  a  part  of  his  salary. 

In  co-partnerships  or  non-stock  campanies,  the  same  end  may  be  served  by 

some  sort  of  a  division  of  profits.   One  concern  in  Elmira,  who  request  that 

the  use  of  their  name  be  withheld,  uses  the  following  plan: 

Three  executives  in  the  following  plan  are  involved:-  The  General 
Manager;  the  Sales  Manager;  the  «ork8  Manager.   Assume  the  annual  business 
for  the  past  three  years  averaged  $2,000,000.  and  that  the  salaries 
were  agreeably  adjusted  based  on  that  volume  of  business,  as  a  basis. 

Assume  that  the  total  salaries  of  the  three  executives  amounted  to 
|20.000,  which  equals  1^  on  sales.   Next,  agree  on  a  per  cent  on  gross 
sales  secured  above  the  t'#o  million  to  be  divided  among  the  three 
executives. 


b 


7 


From  personal  observation,  thisi  plan  re.sulted  in  team  work  where 
little  existed  before.   The  General  Manager  took  lively  interest  in  all 
plans.   The  Works  Manager  hustled  out  orders  and  new  ideas  and  lines,  and 
the  Sales  Manager  was  kept  busy  increasing  his  field,  and  all  three  made 
a  handsome  bonus  the  first  year. 

In  our  investigation,  we  have  tried  to  arrive  at  some  definite  conclusions 


■i^ 


-  22  - 


as 


to  a  formula  that  might  be  followed  in  working  out  a  profit-sharing  arrange 


ment  for  the  sales  manager.   Conditions  are  so  different  in  every  business, 


even 


businesses  in  similar  lines,  that  the  figures  we  gathered  would  be  of  no 


possible  use.   As  a  general  principle,  we  find  that  it  is  generally  accepted 
that  the  sales  manager  should  be  entitled  to  6  per  cent  of  the  profit  shown  by 
his  department,  after  all  over-head,  tases,  etc.  have  been  deducted.  This 
amount  to  be  in  addition  to  his  salary.   The  following  agreement  submitted  by 
one  concern,  may  be  of  interest  in  this  connection: 


January  1,  1919. 


Ur. ' 

Louisville,  Ky, 

Dear  Sir:- 

In  addition  to  your  salary  or  drawing  account  as  Buyer  and 
Department  lianager,  you  will  receive  as  additional  compensation, 
6%   upon  the  profits  shown  by  your  Department  after  deducting  all 
expenses,  but  without  first  deducting  such  Federal  Tax  as  may  be 
due,  same  to  be  effective  as  of  January  1st,  1919, 

Pinal  settlement  is  to  be  made  as  soon  as  our  books  are  closed, 
audited  by  expert  accountants  and  our  final  report  accepted  by  the 
Board  of  Directors. 

^fours  very  truly, 


KSUiLT 


V.  P.  &  General  Manager. 


WHSRBI  FURTHUR  INFORMATION  ABOUT  PROFIT- SHARING  PLANS  MAY  BE . SECURID 


Vv. 


BENEFIT  PLANS  FOR  THE  BaaFLOYEBS  OF  THE  INTERNATIONAL  HARVESTER  CO. 

A  booklet  --  l^rite:  George  A,  Ranney,  Treasurer, 

Interoational  Harvester  Company,  Chicago, 

STUDEBAKBR  CO-OPERATIVE  PLANS  --  A  booklet 

Write:  N,  R.  Feltes,  Treasurer, 

The  Studebaker  Corporation,  South  Bend,  Ind, 

PROFIT-SHARING  --  Report  No.  14  -  To  tjubscribers  only  •  not  for  sale 

Alexander  Hamilton  Institute, 

As tor  Place,  New  York. 

REVISED  PLAN  FOR  PROFIT-SHARING  DTVIDISNDS  FOR  EMPLOYEES  --  A  booklet 

Write:  Mr.  William  Cooper  Proctor, 

Pro(3tor  &  Gamble  Co.,  Cincinnati,  Ohio. 

PROFIT-SHARING  AS  AN  AID  TO  CONTENTED  LABOR  --  A  report 

Write:  Mallory.  Mitchell  &  Faust,  Adv.  Agts.. 
Security  Building,  Chicago. 

CO-OPERATIVE  PLANS  OF  THE  A.  W.  BDRRlTT  CO.  --  A  booklet 

frite:  A.  W.  Burritt,  Treasurer, 

A.  fl.  Burritt  Company,  Bridgeport,  Conn. 

SEARS »  ROEBUCK  &  COMPANY'.^  PROFIT-SHARING  PLAN  --  A  pamphlet 

Write:  Williatn  C.  Graves,  Sec*y.  to  Julius  Rosenwald, 
Sears,  Roebuck  A  Company,  Chicago. 

INDUSTRIAL  PARTNERSHIP  PLAN  OF  DENNISON  MFG.  CO.  --  A  booklet 

Write:  Henry  3.  Dennison,  Framingham,  Mass. 

PROFIT-BHaRING  PLAN  OF  SWEET,  CaOSEY  FOSTER  &  CO.  --  A  booklet 

Write:  Sweet,  Causey  Foster  A  Co., 

Equitable  Bldg.,  Denver,  Colo. 


Series  of  articles  in  Chicago  Tribune  by  Arthur  M.  Evans  --  1918  and  1919. 
Article  in  "System  Magazine"  A.  W.  Shaw  Company,  Chicago  -  January  1919  issue. 
Article  by  Forrest  Crissey  in  Saturday  Evening  Post  -  for  October  4th,  1919* 
Bulletin  #208  U.S.  Dept.  of  Labor,  Government  Printing  Office.  Washington,  D.C 
An  investigation  of  the  Ford  Profit-Sharing  Plan  --  Detroit  News. 
Book  by  A.  W.  Burritt.  Harper  Brothers,  New  York  (l918) 


>N 


^^^t^EEtjjjjj, 


'i^m/UlatSttiaetrA'SitvMmym 


■^n?Sy^ 


^yj. 


9AirTHCt,i|  yjEWvtCC 


VALUABLE  both  for  the  data  it  contains,  and  as  a  place 
for  systematically  keeping  information  and  statistical 
data  of  your  own.  Letter  sized.  Divided  into  twelve 
sections  by  leather  tabbed  indexes.  Each  index  tab  is  lettered 
in  gold:  "Market  Data"  "itook  and  Articles"  "Mailing  Lists" 
Stimulating  Sa  esmen  ',  et«:.  Under  each  classification  are 
filed  numerous  loose-leaf  pages  summarizing  sales  plans  and 
Ideas,  statistical  data  and  other  vital  information  needed  in  the 
management  of  a  modern  sales  department. 


Z 


HMiiiiiiiiy 


Over  10,000  of  These  Desk  Books  Now  in 

Use  by  Sales  Managers 

No  well-equipped  sales  department  <an  afford  to  be  without  it.  It  will  repay  its 
cost  many  times  every  month.  It  summarizes  in  a  few  hundred  boiled  down  letters 
the  picked  sales  plans  of  America's  most  successful  sales  executives.  Invaluable  for 
working  out  sales  campaigns,  re-organizing  the  sales  force,  for  house  organs  and  sales 
bulletm  material,  assigning  sales  quotas,  etc.  Every  plan  fully  described  with  all 
working  information. 

Some  of  the  ^formation  the  Nfew  Dartnell  Desk  Book  Contains: 


Plans  for  Speeding  Sales:  Graphs  that  show 
salesmen  business  they  are  missing;  Ratz  plan  for  rout- 
ing salesmen;  plan  for  developing  all  around  efficiency; 
checking  methods  to  show  territory  conditions,  etc., 
etc. 

References  for  Sales  Executives:  List  of 
articles  that  have  appeared  in  Sales  Management 
Magazine,  Printers'  Ink,  Advertising  &  Selling,  The 
Mail  Bag,  and  other  publications  of  value  to  a  sales 
executive.  Lists  of  books  relating  to  sales  manage- 
ment and  selling.     How  to  anange  this  data. 


Vital  Sales  Statistics  :  Statistics  for  reassigning 
quotas;  analysis  of  auto  registrations  by  states;  chart 
analysis  of  retail  selling  data;  charts  showing  when 
farmers  buy;  market  data  for  developing  the  small 
town  market;  automobile  expense  data;  etc. 

Model  Forms  for  Sales  Uses:  Application 
blanks  for  salesmen;  Report  forms;  Territory  analysis 
records;  form  of  notes  used  in  giving  salesmen  stock; 
salesmen's  employment  records;  salesmen's  contract 
and  dealer  agreement  forms;  etc.,  etc. 


Price,  complete  with  black  leatherette  ring  binder,  set  of  leather  tabs, 
extra  note  sheets,  and  two  hundred  pages  of    reference   data^$7.50 

Sent  on  Approval,  Subject  to  Return,  if  Not  Satisfactory 

The  Dartnell  Corporation 

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Publishers  of  Books  and  Reports  for  Sales  Managers  and  Salesmen 

1805  Leiand  Avenue,  Ravenswood  Station,  CHICAGO 


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